CBO Business Operations Management 2 — Questions and Answers
Question 1: A business operator discovers that a key supplier has a 15% defect rate. Which corrective action best aligns with Total Quality Management principles?
- Switch suppliers immediately without notice
- Issue a corrective action request and set measurable improvement targets with the supplier (Correct answer)
- Accept defects and increase inspection staffing
- Pass defect costs to customers through price increases
Correct answer: Issue a corrective action request and set measurable improvement targets with the supplier
TQM emphasizes collaborative supplier development with measurable improvement targets rather than punitive responses.
Question 2: Which financial metric best measures how efficiently a business converts inventory into revenue?
- Gross profit margin
- Inventory turnover ratio (Correct answer)
- Current ratio
- Return on equity
Correct answer: Inventory turnover ratio
Inventory turnover ratio (COGS ÷ average inventory) directly measures how many times inventory is sold and replaced in a period.
Question 3: A small business owner wants to reduce waste in order fulfillment. Which methodology is most directly applicable?
- Six Sigma DMAIC
- Lean operations (Correct answer)
- SWOT analysis
- Balanced Scorecard
Correct answer: Lean operations
Lean operations is specifically designed to identify and eliminate waste (muda) in processes and workflows.
Question 4: Under the Americans with Disabilities Act (ADA), which obligation applies to businesses with 15 or more employees?
- Provide free transportation for disabled employees
- Make reasonable accommodations for qualified individuals with disabilities (Correct answer)
- Reserve 10% of positions exclusively for disabled workers
- Install elevators in all multi-story buildings regardless of cost
Correct answer: Make reasonable accommodations for qualified individuals with disabilities
The ADA requires employers with 15+ employees to provide reasonable accommodations unless doing so causes undue hardship.
Question 5: A business uses a FIFO inventory valuation method during a period of rising prices. What is the financial impact compared to LIFO?
- Lower COGS and higher net income (Correct answer)
- Higher COGS and lower net income
- No difference in reported net income
- Lower inventory value on the balance sheet
Correct answer: Lower COGS and higher net income
FIFO assigns older, lower-cost inventory to COGS first, resulting in lower COGS and higher reported net income when prices rise.
Question 6: Which type of business structure provides personal liability protection to all owners while allowing profits to pass through to personal tax returns?
- Sole proprietorship
- General partnership
- Limited Liability Company (LLC) (Correct answer)
- C-Corporation
Correct answer: Limited Liability Company (LLC)
An LLC combines liability protection for all members with pass-through taxation, avoiding the double taxation of a C-Corporation.
Question 7: A business operator is evaluating a capital investment using Net Present Value (NPV). If the NPV is negative, what does this indicate?
- The project will generate losses in every year
- The projected return is less than the required rate of return (Correct answer)
- The payback period exceeds 10 years
- The business cannot obtain financing for the project
Correct answer: The projected return is less than the required rate of return
A negative NPV means the discounted future cash flows do not exceed the initial investment at the chosen discount rate, indicating the project destroys value.
CBO Business Operations Management 2
A business operator discovers that a key supplier has a 15% defect rate.
Which corrective action best aligns with Total Quality Management principles?